With Expansion to U.K., Sweden’s Klarna Sets Eyes on U.S.

LONDON—A company that lets most users of its platform shop online without having to enter credit card details or even passwords is expanding to the U.K., with hopes of soon crossing the Atlantic into the U.S.

Klarna AB, a Swedish company that says it already handles 30% of all online payments for the Swedish market, will become available to U.K. shoppers on Tuesday, first on the website FitnessGuru.com, company officials said.

In an attempt to take on payments giant PayPal, which is owned by eBay, Klarna provides a way for shoppers to enter as little information as possible – sometimes, just an e-mail address – to have goods ordered and delivered. Customers have 14 days before they start to incur late fees to pay Klarna, using traditional methods such as a bank transfer. In the meantime, the company underwrites the risk.

Klarna is trying to solve a problem for online retailers known in the industry as shopping-cart abandonment, the idea that shoppers won’t follow through on purchases if there are too many obstacles in their way.

Founded in 2005 by three business school students in Stockholm, Klarna has quickly established itself one of Europe’s fastest-growing startups. It charges fees to the online merchants who use the services, as well as interest on consumer installment payment plans. It is backed by around $282 million in venture capital funding from firms including Sequoia Capital, based in Menlo Park, Calif.

Klarna’s rise is part of a wave of companies who have entered the payments sphere, especially after an EU directive that went into effect in 2009 that opened up the industry to new players. Klarna’s pitch is that it doesn’t need users to even create a password to use credit.

“We need to be really good in risk assessment — that’s the core of Klarna,” co-founder Niklas Adalberth said. ”Are you actually going to pay in the end, or are you not?”

There are a variety of factors the company uses to judge risk: Is the customer buying at 3 p.m. or 3 a.m.? (A late-night purchase would be considered more risky.) Is the customer looking to buy one iPad — or 10? Where do customers live, and have they used Klarna before?

If the company’s algorithms determine someone is too risky, the customer will have to check out the old-fashioned way, by getting a credit card out of a wallet. About 80% to 85% of the time, customers get the green light based on a very small amount of information, such as e-mail and delivery addresses.

The company plans to spend at least €100 million ($170 million) in the coming years expanding in the U.K., similar to what it said it spent in Germany. Adalberth said the company actually grew too fast in Germany and will ramp up more slowly in the U.K., adding retailers in the coming months. Its first, FitnessGuru.com, offers protein and dietary products and used Klarna in Germany, Adalberth said.

While it can be relatively easy for a payments company to succeed in a local market, it could be more difficult for those kinds of companies to expand, Berenberg analyst Ali Farid Khwaja said.

“There are a lot of cultural and geographic differences in the way people pay and what kind of payment options they want to use,” he said. “It’s not a homogenous market.”

British customers’ use of credit cards and online shopping habits are closer to that of Americans than the rest of Europe. That could smooth the way for expansion in the U.S., but at the same time the company is going to face stronger competition from eBay’s PayPal, Khwaja said.

The U.K., Adalberth said, is “for many companies the entry market to the U.S.”

Klarna can operate throughout Europe, but it will be more difficult to enter the U.S. market, company officials said. The company is exploring how to become regulated in the U.S., company officials said.

“Even though we have a very high growth and a high turnover, we’re still only in Europe. We see ourselves as a startup still,” Adalberth said. “We have so much more to do.”

PayPal also gives users the option to “buy it later,” though users still need to remember a password to log in.

PayPal spokesman Rob Skinner said the company welcomed competition. “We have a strong track record of innovation across online, mobile and increasingly offline payments. Our focus is meeting the needs of our customers: we have 148 million active accounts globally in 203 markets.”

Sven Grundberg contributed to this report.

Klarna said it would spend £100 million over the next few years in the U.K. A previous version of this article put the figure at $100 million.